Fake online coupons spark widespread fiasco

Originally published August 27, 2008 at 12:00 am
Updated August 26, 2008 at 10:27 pm

Thousands of consumers may be holding fraudulent coupons for groceries and toiletries after an Internet marketing fiasco that one industry spokesman described as an unprecedented consumer mess that could take years and a million dollars to clean up.

Fraudulent coupons for groceries and toiletries are being circulated in an Internet marketing fiasco one industry spokesman predicted would take years and a million dollars to clean up.

The mess, which began as a small marketing experiment on Facebook, has created a backlash from coupon-clippers who say they felt like criminals for trying to redeem coupons for items such as shampoo and Cheez-Its.

The San Jose, Calif., company that created the coupons said it was victimized by computer hackers who tapped into a company database and stole images of coupons the company planned to use in sales pitches to major manufacturers.

Those images, as well as coupons offered through the marketing test, were copied in a form that allows them to be circulated and “clipped” by anyone with e-mail and a printer.

The firm is still grappling with how to deal with the coupons, both the ones it authorized and later suspended, and the ones it said were hacked. Meanwhile, an industry group is scrambling to get the word out to retailers who will have to deal with the coupons at the cash register.

“We’ve never run into a situation like this before,” said Bud Miller, executive director of Coupon Information Corp., a not-for-profit group that works for more than 20 manufacturers to protect them against coupon fraud. “It could be hundreds of thousands of dollars before it’s over. Potentially, it could be in the low millions. We won’t know until the coupons come in for processing.” Miller said the manufacturers he represents did not know coupons were being issued for their products.

The situation began Aug. 15, when Vryl Mkt offered about $10,000 worth of coupons for 12 products through “Check It Out,” a commercial application the company developed to test the marketing power of the social-networking site Facebook, according to company president Harry Soza.

People with Facebook accounts could click on the button to download the coupons, as well as recommend them to friends.

Soza said the firm’s employees were still congratulating themselves on what he said was a successful test when consumers began contacting them to see if the coupons were real. The company reassured people the coupons were legitimate. Quickly, though, it realized that not only were the coupons being copied and disseminated more widely than it had intended, but that sample coupons the company intended to use only for marketing pitches had been taken from its database and were being circulated as well, Soza said.

In correspondence with the company, one clipper said he heard there are now coupons for up to 40 products floating around.

Within a few days, the company told retailers not to honor any of the coupons, and told consumers: “In order to protect our retailers and all of you responsible coupon users, all coupons will now be considered invalid copies. We are working with all the industry players and word is going out to the retailers not to accept them.”

Consumer condemnation was swift and harsh, and within days, a law firm was organizing a class-action suit against Vryl Mkt.

“I really felt like a fool and was quite embarrassed when I was scrutinized for attempting to use these coupons this past Saturday,” wrote centsavingma, who posted a complaint on iReport.com. Three store managers came to the register to inspect the coupons, while a man behind her in line complained that his ice cream was melting, she wrote. Eventually, they canceled the transaction.

Another poster wrote that she was “mortified” after making a special trip to Target to use a $6 coupon for Pantene shampoo, only to have the coupon rejected at the register.

Others, however, wrote they had no problem redeeming the coupons, and felt bad that retailers might get stuck with the tab.

Miller’s industry group was alerted to the problem more than a week ago, and has worked overtime to get the word out to retailers and the manufacturers whose products are featured on the bogus coupons.

“It’s clear, to our knowledge, that there were no security features associated with these coupons,” Miller said. “If you’re going to do Internet coupons, you should exercise appropriate controls.”

The only upside, he said, was the honesty of the coupon clippers who helped expose the problem.

“I think the whole coupon-trading community ought to be commended,” he said. “They immediately recognized there was no security associated with these coupons, and starting warning each other.”

How the money shakes out is still up in the air. Soza said the company will honor the coupons it authorized that have already been redeemed, but hasn’t decided how to address the bogus ones. Miller, and most of the consumers who have commented online, said the company should be held accountable for everything it created.

“There are 40 coupons in wide circulation with no controls,” Miller said. “There’s a reasonable chance we’re going to be dealing with this for a couple of years.”

Susan Kelleher: 206-464-2508 or skelleher@seattletimes.com; on Twitter: @susankelleher. Susan Kelleher is a news junkie and writer for PacificNW magazine. She loves meeting people and telling their stories, and believes there is no such thing as too much coffee.